Studies Underline Housing and Income Challenges

September 12, 2014

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Monday marks the sixth anniversary of the bankruptcy filing
of Lehman Brothers, a key event in the Wall Street meltdown that led to the
Great Recession. The recession wreaked havoc on the retirement plans of
millions of Americans, and two studies released last week suggest that most of
us haven't recovered well. To be more precise: Middle- and lower-income
Americans haven't recovered at all, while the wealthiest households have done
fine.

The Joint Center for Housing Studies of Harvard University
(JCHS) issued its findings on the challenges we face meeting the housing needs
of an aging population in the years ahead. Meanwhile, the Federal Reserve Board
released its triennial Survey of Consumer Finances (SCF), a highly regarded
resource for understanding American households' finances.

The Harvard study found that our existing housing stock is
ill-suited to meet seniors' needs, including affordability, accessibility,
social connectivity and support services. And high housing costs are eating
into the ability of low-income older adults to pay for necessities like food
and healthcare.

Harvard found that a third of adults over age 50 pay more
than 30 percent of their income for housing - including 37 percent of people
over age 80. Harvard defines that group as “housing cost burdened.” Another
group of "severely burdened" older Americans spend more than 50
percent of income on housing. That group spends 43 percent less on food, and 59
percent less on healthcare, compared with households that can afford their
housing.

Homeowners are much less likely to be cost-burdened than
renters, the study found. But more homeowners are carrying mortgages well into
retirement. More than 70 percent of homeowners aged 50 to 64 were still paying
off mortgages in 2010.

The Federal Reserve findings on middle-class retirement
prospects are equally troubling. Despite the economy’s gradual mending, the SCF
found a widening gap in income and net worth. The top 10 percent of households
was the only income band registering rising income (up 2 percent since 2010).
Households between the 40th and 90th percentiles of income saw little change in
average real incomes from 2010 to 2013. And the rate of homeownership was 65 percent,
down from 69 percent in 2004 and 67 percent in 2010.

Ownership of retirement plan accounts also fell sharply. In
the bottom half of income distribution, just 40 percent of households owned any
type of account - IRA, 401(k) or traditional pension - in 2013, down from 48
percent in the 2007 survey. The Fed attributes the drop mainly to declining IRA
and 401(k) coverage, since defined benefit coverage remained flat. Meanwhile,
coverage in the top half of income distribution was much higher. In the top 10
percent, 95 percent of families are covered.

Overall, the average value of retirement accounts jumped a
substantial 10 percent from 2010 to 2013, to $201,300. The Fed attributed that
to the strong stock market and larger contributions. But for the lowest-income
group that owned accounts, the average combined IRA and 401(k) value was just
$39,100 - and that is down more than 20 percent from 2007.

Considering the stock market’s strong performance in the
intervening years, that suggests many of these households either sold while the
market was depressed, drew down savings - or both. Meanwhile,
upper-middle-income households saw a gain of 20 percent since 2007.

In Washington, lobbyists and policymakers have been debating
about whether a retirement crisis really is looming. The various sides
typically filter the data to support their viewpoints and agendas. But it’s
difficult to think of two sources aligned than the Federal Reserve Board and
Harvard. The SCF, in particular, is widely viewed as a gold standard survey
that will be relied on for many economic reports in the months ahead. It
includes information on the household balance sheets, pensions, income and
demographic characteristics of about 6,500 families.

Taken together, the studies paint the portrait of a widening
divide in the retirement prospects of working Americans. No matter how the data
is sliced, we’ve got problems that need to be addressed.